The Million Dollar Club

Pig imageBy Ian McMahon

THE bosses of Australia’s major listed travel agencies have experienced fluctuating fortunes in 2013/14 – and the biggest rewards have not necessarily gone to those who achieved the best bottom line results.

Helloworld, which reported an after tax loss in the millions and a big drop in turnover, still had two executives in the Travel Bulletin “Million Dollar Club” of travel agency executives with seven figure pay packets. This was because they received large performance-related cash bonuses.
By contrast, Webjet achieved record turnover and record profits, but executives forfeited all cash bonuses and the company no longer has a Million Dollar Club member.

Webjet chief executive John Guscic, who made it into the club last year, is paid a very similar base salary to Helloworld chief executive Elizabeth Gaines. But it was Gaines who picked up a bonus and Guscic who dropped out of the Million Dollar Club.

At Helloworld, after tax losses of $63.3 million in 2013/14 represented a 492 per cent drop on the small $16.2 million profit the company made the previous year. Total transaction value was $4,861 million, a six per cent fall from the $5,177.4 million of the previous 12 months.

The company’s online market share plummeted following the decision to close Best Flights and there has been at least a seven per cent drop in retail locations since the December 2013 announcement of the Helloworld single brand strategy (and about 18 per cent since the 2010 merger that formed the company now known as Helloworld).

The company has also written down good will by $65.4 million and the value of brand names and trademarks by nearly $2 million.
Nevertheless it is taking an optimistic view of the future, citing five per cent reduction costs and an “adjusted EBITDAI” of $40.6 million – a figure calculated by ignoring the $15-16 million spent on Helloworld implementation. It is foreshadowing improved profitability this financial year.

Which is presumably the justification for the bonuses that ensured both Gaines and her predecessor, Rob Gurney, took home seven figure pay packets in 2013/14 – $1,105, 616 for Gaines and $1,203,308 for Gurney. Gaines’ total pay included a $400,000 cash bonus paid as a short term incentive and a $36,768 long term incentive share based payment. 

Gurney, who has remained on the payroll since he departed Helloworld in the wake of internal dissension over his management style, received a cash bonus of $284,750 and $79,500 in share based payments.

Third best paid executive at Helloworld was Russell Carstensen who was actually the only key manager with a bulkier pay packet in 2013/14 – Gaines and Gurney earning less than in 2012/13. His total earnings of $857,980, just ahead of the $847,024 he accrued the previous year, included a $326,600 bonus, no doubt reflecting that he heads Air Tickets, probably the company’s most successful division. Additionally, he was handed the “poisoned chalice” of the perennially loss-making QBT and turned it around to profitability.

Interestingly Helloworld’s annual report has cut back on the disclosure of executive salaries with Andrea Slark and Mike Thompson no longer qualifying for the list of key management personnel (KMPs) whose remuneration is listed.

Head of wholesale Peter Egglestone earned $373, 392 – scaled back considerably from the rewards accumulated by former group general manager wholesale Simon Bernardi who in 2011/12 made more from sign-on and termination payments ($369,079) than he was paid for doing his job ($326,087).

Webjet directors have been far less lavish with shareholder funds. Guscic oversaw a dramatic improvement in the online travel agency’s fortunes in 2013/14 – total transaction value was up 32 per cent to just under $99 million while after tax profit soared by 33 per cent to more than $19 million.

The loss-making Zuji, acquired by Webjet in 2012/13, was transformed into a profitable enterprise; the company made further inroads into accommodation sales; and Guscic could continue to make the uncontested claim that Webjet is the only full service OTA in the world to make money out of air ticket sales.

But despite achieving these results, Guscic and his chief operating officer Shelley Beasley both missed out on cash bonuses because they failed to achieve the budget set by the board – albeit Guscic did receive performance-related share-based payments of $283,127.

Last financial year, Guscic entered the Travel Bulletin Million Dollar Club when a $340,000 bonus took his total pay to $1,154,638. But this year, without a bonus, he dropped out of the club.

Beasley, who received a $115,750 bonus in 2012/13, also took home a much lighter pay packet this year as a result of missing out on a bonus. She earned $381,466 compared to $477,293 in the previous 12 months.
Replacing Guscic in the Million Dollar Club is Scott Blume, the boss of rival OTA, Wotif, now in the process of negotiating a deal that would see it become part of Expedia.

The two have roughly equivalent base salaries but Blume’s earnings soared to $1,655,572 thanks to a $100,000 cash bonus and $787,133 worth of options/performance rights. This took him to second place on the Million Dollar Club table, ahead of last year’s leader Flight Centre ‘s chief operating officer and executive general manager Australia Melanie Waters-Ryan.

Waters-Ryan was just one of a number of Flight centre executives who were paid considerably less in 2013/14. The company’s after tax profit of $206,918 was 16 per cent down on the previous 12 months although the company said “underlying profit” before tax was up 9.7 per cent to $376.5 million (after taking into account such items as the one-off $11 million fine imposed by the ACCC and a $61.3 million non-cash write down of good will and brands).

Collectively Flight Centre’s six KMPs earned $1,054,890 less than last financial year. Waters-Ryan dropped a cool $741,680, earning $1,493,342 compared to $2,245,022 in the previous 12 months. However the company’s managing director UK and South Africa Chris Galanty scored a pay rise from $1,577,995 last financial year to $1,848,413 in 2013/14 and moved to the top of the Million Dollar Club.

The executive team at Corporate Travel Management steered the company to 56 per cent growth in total transaction value ($1.583 billion) in 2013/14 and substantially increased profits of $15.8 million (up from $11.3 million in 2012/13). Chief executive for Australia and New Zealand Laura Ruffles saw her rewards increase to a still modest $486,159 ($406,979 in 2012/13) thanks to a 6.4 per cent increase in base pay and bigger hikes in performance-related payments – cash bonus up from $90,000 to $100,000 and share appreciation rights of $24,338 compared to $9,317 in 2012/13.

Company founder and managing director Jamie Pherous continued to take only $300,000 in base pay out of the company. It was only because of annual leave and superannuation accumulations that his overall remuneration rose to $362,216 ($340,375 in 2012/13). Of course, Pherous, with 23 million CTM shares, also benefits from the fully franked dividends of 0.12 cents paid by the company for 2013/14 – a handy income of $2.76 million. Claire Gray, with more than 5 million shares, reaped a dividend income of $600,000. With CTM shares hovering around the $7.50 mark in early September, Pherous’ paper wealth stood at an impressive $172.5 million.

This was, however, dwarfed by fellow Queenslander, Graham (Skroo) Turner, whose 15.2 million Flight Centre shares accrued dividends of $1.52 in 2013/14 yielding a fully franked income of $22.8 million. Trading at around $47.60 in early September they gave Turner a paper wealth of more than $723 million.

At press time, Qantas and Virgin Australia had filed only preliminary reports with the Australian Stock Exchange and these did not detail the remuneration of their KMPs.